MAS Offers Exemptions From TDSR – First Step In Preventing a Home Loan Debt Bubble?

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Yesterday’s announcement by the Monetary Authority of Singapore (MAS) that it would exempt owner-occupiers of residential properties from the current TDSR rules was an interesting move – especially when you consider how quick MAS moved to contest a Forbes article about a potential housing debt and credit bubble in Singapore.

Maybe the move wasn’t spurned by numerous international media outlets saying the same thing. Maybe it wasn’t the statistical fact that Singaporeans have the one of the highest levels of household debt in Asia, with 75% of that debt coming from home loans.

Maybe the latest MAS exemption was an “I meant to do that” moment, or maybe it’s just the first step in preventing a major housing bubble in Singapore.

Regardless of the rationale for the change, MAS has loosened the TDSR noose around the necks of Singaporean property owners with the following exemptions:

Owner-Occupiers Can Refinance Their Residential Property Loans

If you purchased your home before the latest TDSR rules went into effect on 29 June 2013, MAS will exempt you from the current TDSR restriction so you can refinance your home loan – but only if you’re occupying the home that you’re refinancing.

If you’re unfamiliar with TDSR and exactly how it affects your home purchase, read our Editor’s insightful article “Total Debt Servicing Ratio (TDSR) and How It Affects Your Loans.”

MAS makes it clear that if you’re an owner-occupying trying to refinance, you’ll get the following exemptions:

  • The Mortgage Servicing Ration (MSR) won’t apply to you if you’re refinancing a home loan for an HDB flat or an Executive Condominium (EC) ONLY if you purchased the HDB flat before 12 January 2013 or 10 December 2013 for ECs (MSR implementation dates).
  • If your purchased your residential property before the current loan tenure limits (30 years for HDB/35 years for all other residential properties) were implemented on 28 August 2013 for HDB flats and 6 October 2012 for all other residential properties, you’ll be able to maintain your current loan tenor even if it exceeds the current tenure limits.

Borrowers Can Refinance Their Investment Property Loans

Owner-occupiers of residential properties are the focus of the latest TDSR exemption, but perhaps the ones in even more danger are the overleveraged property investors. MAS maintains that the 60% TDSR limit continues to apply to refinancing of all investment properties.

But… despite that proclamation, MAS says that it understands that some property investors need a little breathing room to “right-size” their debt obligations.

In other words, if you’re a property investor who’s an interest rate hike away from having a Fukushima-like financial meltdown, this exemption is for you:

  • MAS will give you until 30 June 2017 to refinance your investment property loans above the 60% TDSR limit under the condition that you:
    • A) must have purchased the investment property before 29 June 2013,
    • B) commit to a debt reduction plan with the bank you’re refinancing with; and
    • C) you fulfill your bank’s credit assessment.

If You’re Going to Refinance – Do It Now!

There’s no question about whether interest rates will go up. There’s only the question of when it’ll happen. Once the U.S. starts letting up on its Quantitative Easing (QE) and interest rates starts rising, it’s the overleveraged Singaporeans who will be the first to go under once the tsunami hits.

So what MAS just did was give you an early warning if you’re too close to the beach (over-leveraged). Right now you still have time to get to financial safety. So if you’re going to refinance, do it now. Thankfully, the home loan experts at Smartloans.sg can help you refinance with the best interest rate available free of charge.

Do you think the new MAS TDSR exemption is the first step towards preventing a “bubble” burst? Share your experience on Facebook! And to find even more useful information on everything personal finance, visit MoneySmart today!

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